Some of the drivers include rising global risk appetite, a roughly 50 per cent gain in oil prices, and the general reduction in pessimism.

Doyle also noted that short covering on the loonie has helped the currency rebound, as short contracts on the Canadian dollar have fallen from 65,000 to 16,000 – the lowest level since June 2015.

However, the strategist still sees downside for the loonie versus the U.S. dollar, albeit at a more gradual pace.

He predicts the Canadian dollar will hit an all-time low of 59 cents U.S. in the coming years, but that will only come during a global period of risk aversion. For the end of 2016, Doyle sees the loonie at 69 cent U.S.

“Unprecedented divergence in leverage and housing investment cycles in the U.S. and Canada should lead to unprecedented monetary policy divergence,” the strategist told clients, noting that this means the gap between U.S. and Canadian government bond yields should continue to widen.

Despite the general rise in market optimism for Canada, Doyle cautioned that a combination of oil prices in the US$40 to US$45 per barrel range, and the loonie above 75 cents U.S., could spell further trouble for the domestic economy.

That’s because crude prices at that level are unlikely to produce a meaningful capital spending recovery in the energy sector, higher oil prices put additional pressure on already stretched household budgets, and the stronger loonie has made Canadian exports less attractive.